Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

05 December 2006

Forum Notes




Notes on meeting at Scotland House, Brussels
 
The German Presidency’s programme for the financial services sector and the issues of concern to the Parliament in relation to the Acquisitions Directive were the two main items on the agenda for Graham Bishop’s European Financial Forum.
 
Wolf Klinz MEP, the Parliament’s Rapporteur[1] on the Acquisitions Directive, said that although there had been 180 amendments put down in the Parliament to this directive on mergers in the financial services sector, he was optimistic that compromises could be reached on a text in Parliament. Less clear however is whether an inter-institutional agreement will be so easily achieved, not least because he detects potential “roadblocks” on the Council side.
 
The Commission, he suggested, had put forward a tough and ambitious proposal, partly because it sensed that this was a Directive the Council wanted. But it quickly became clear from reactions from central banks, especially the Bundesbank, and from regulators, that it might not be as simple to get agreement as the Commission might have thought.
 
In particular there was a widespread view that Commission’s aim of establishing a 30 day period for a decision on an acquisition proposal was not seen as realistic and, even more controversial, was its demand that it should get access to all the paperwork on which a host regulator’s decision on a cross-border acquisition was based.
 
Parliament’s initial reaction was that it agreed with the directive’s objective about the goal of achieving a clear and transparent cross-border takeover regime with clear deadlines. The need for this had been demonstrated by the way in which Italian central bank Governor Antonio Fazio had sought to block deals. But it decided that a 30 days deadline for a decision might be too short and moved the figure to 47 daysor, if it was necessary to “stop the clock” to get more detail, 57 days.
 
The Commission did not approve of this, and then the Council wanted an unspecified open-ended period during which the clock could be stopped. This is not acceptable to Parliament, as it implied no change from the current situation.
  
 
As for the list of criteria which cross border acquirers should have to meet to secure approval, here there is little disagreement in general, but room for debate in the detailed application of the rules. (See the EP’s Explanatory Statement appended to these Notes) There is, however, a clear demand that a distinction needs to be made between cross-border acquirers from outside the EU and those from within it. More than 30 days (or more than 47 days in the Rapporteur´s view)may be needed to look at prospective non-EU acquirers, some of whom may be backed by criminal groups, or may have terrorist or money-laundering connections, and whose backgrounds need to be checked by state intelligence agencies.
 
There is the question of where the burden of proof lies in determining whether or not a proposed acquisition should be approved. The Commission says that the host or target supervisor should decide, and the Parliament agrees. Home and host supervisors must, of course, cooperate. But the Parliament does not want shared responsibility, not least because this would slow the process down. As for the Commission’s demand for direct access to supporting documents, this is not being accepted but a compromise through a non-binding “recital”  being added to the directive might solve the problem.
 
Finally, some countries are pressing for a “reciprocity” clause for non-EU countries, but there is disagreement here between member states.
 
Alan Houmann of the CEBS Secretariat pointed out that when it came to obstacles to cross border mergers, CEBS had gathered evidence that suggests that issues relating to commercial strategy, management culture, consumer protection, differing deposit guarantee rules, labour codes, tax and legal obstacles, were more significant obstacles than regulatory barriers. Regulators had learned, however, from recent disputes (e.g. the Italian and Polish cases) that, as a group, they had to be more sensitive to cross-border issues or all their reputations could suffer.
 
Although CEBS is supportive[2] of the general thrust of the Directive, care needs to be taken that deadlines are not set so tightly that mergers between large complex cross-border banks and conglomerates do not have to be handled through a procedure better designed to handle small domestic bank deals. CEBS also believes that the information which a supervisor requires should be published - which will itself create pressure for convergence amongst supervisors.
 
He raised the issue of where the burden of proof lies in deciding whether an acquirer is “fit and proper”, on the supervisor to prove that the prospective acquirer is not, or on the management of a financial institution to prove that it is. Moreover, he added, within the EU there are wide differences over how “fit and proper” is defined. CEBS’ main concern is that any changes to the Directive allow the supervisor to continue to require that an acquirer is suitable not only to take over an institution but has the capacity to manage it on a continuing basis afterwards. He added that, within the Level 3 Committees, there was a range of views (both nationally and institutionally) over whether all the information related to an acquisition process should be given directly to the Commission, with CESR, for example, very opposed to such an option.
 
In the ensuing discussion, disagreements surfaced on the issue of “reciprocity” (a provision recently introduced in the Parliament) with some participants arguing that such a requirement related to non-EU countries provided a lever to pressure them to open up their markets to EU acquisitions, others saying “reciprocity” requirements are not necessary and would only hamper acquisitions into the EU which could improve the quality of EU financial markets.
 
One participant suggested that differing national consumer protection rules are a major barrier to cross-border deals. Graham Bishopadded that it is real business factors, not supervisory regulations which are slowing cross border M&A activity.
 
Silvia Bosch – Financial Counsellor at the German Permanent Representation - then outlined the German Presidency’s priorities[3]. So far as economic issues are concerned these will not be finally established until January, although in general terms the goal is to ensure efficient and effective management of economic policy, a challenge now that the EU has been enlarged and will in Januaryincrease in size again to twenty seven members.
 
So far as the financial services sector is concerned, the priority is further steps to complete the internal financial market and the focus will be on: Payment Services Directive; Acquisitions Directive; Better Regulation; convergence of supervisory behaviour; hedge funds; Solvency II; deposit guarantee schemes; consumer credit and mortgage credit; clearing & settlement.
 
Both the Payments Services Directive and the Acquisitions Directive would be very important. On the PSD, the timetable is tight, with the aim to get a first reading agreement in Parliament in February or March, a similar timetable as for the Acquisitions Directive, which should be easier to achieve than with the PSD.
 
The better regulation initiative will also be a priority, especially in relation to SMEs, and to improve the business environment. In this context the German Presidency approves of the Commission’s decision to agree a code of practice with clearing and settlement providers, but will have to discuss implementation with member states. Another important issue is the promotion of the convergence of supervisory behaviour in the financial services sector, a longer term project, which will be influenced by the second interim report on the Lamfalussy process from the Inter Institutional Monitoring Group, which is expected in early 2007.
 
Finally, the issue of hedge funds is a priority. The Presidency is clear however that the aim is to see whether it should propose a transparencyinitiative on hedge funds at the G7/G8 level. This is a big and growing market and we think we should know more about it, who sells the products, who are the intermediaries, who buys them, what they invest in, and what the risks are, so that an effort can be made to assess the degree of systemic risk they may present and also to deter fraud and abuse and support investor protection. The aim is to see whether further action is needed or not. But, the Presidency is clear that hedge funds are different from private equity, and this is not an initiative which addresses private equity, nor a revival of the “locusts” debate in Germany. Hedge funds are collecting money, investing and have high leverage. The issue is: does this have systemic risk implications for markets and banks. This is a fact gathering initiative, to find out if there is a problem and, if so, what it is.
 
In the ensuing discussion, some participants expressed concern about the tight timetable for the PSD and also about the lack of scrutiny of the legislation as a result of trying to get it approved on a first reading. Concern was expressed that prudential requirements for non-bank payments institutions could become a barrier to competitive entry and about the potential for the controversy over interchange fees, stimulated by the recent ECB report on payment cards, to become a blocking issue. The clearing and settlement code of conduct also generated concerns since banks were being asked to sign up to it but they have had no role in its formulation. Would it would be implemented in all member states in the same way and would users have a role in monitoring the agreement’s implementation one participant wondered. Given the high political need to deliver a result from the code of conduct agreement, there are fears that not enough effort will be put in to ensuring that some of the profits will be passed on to users. The code needs external monitoring, one participant insisted.
 
 
 
*****
 
 
  
The European Financial Forum in 2007
 
The Forum will have four meetings in 2007 – March, June, October and December.
 
  • The March meeting is provisionally scheduled for Wednesday 7th March but will have to be confirmed once the availability of speakers is settled.
 
  • The description of the 2007 Forum and the provisional topics is attached separately
 
 



© Graham Bishop


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment